Free Financial Risk Management Questions and Answers — Questions and Answers
Question 1: What else is referred to as a net worth statement
- Statement of Owner's Equity
- Income Statement
- Balance Sheet (Correct answer)
- None of the above
Correct answer: Balance Sheet
Using a net worth statement is one of the most popular ways for people and businesses to assess their financial situation (a.k.a., balance sheet).
Question 2: The possibility that a transaction won't properly clear is referred to as the
- settlement risk (Correct answer)
- credit risk
- exchange risk
- clearance risk
Correct answer: settlement risk
Settlement risk is the possibility that one party to a financial transaction won't be able to fulfill their half of the bargain by failing to provide the necessary funds or security.
Question 3: What does RR mean?
- FAD recovered
- EAD recovered (Correct answer)
- PD recovered
- LGD recovered
Correct answer: EAD recovered
Calculating expected loss and capital also need data for exposure at default (EAD). It is characterized as the total amount owed at the moment of default. Although this isn't always the case, a contract's exposure typically matches its unpaid balance.
Question 4: Which risk comes from the failure of the settlement?
- Performance risk
- Market risk
- Operational risk (Correct answer)
- Credit risk
Correct answer: Operational risk
Operational risk is the possibility of suffering a loss as a result of subpar or ineffective internal systems, people, or processes or as a result of uncontrollable outside factors.
Question 5: It is possible that several borrowers in one country default on their loans is
- currency risk
- credit risk
- interest rate risk
- sovereign risk (Correct answer)
Correct answer: sovereign risk
The possibility that a government could stop paying its debts (sovereign debt) or other commitments is sovereign risk, also known as country risk. It is also the risk that is typically attached to lending money to a certain government or investing in that nation.
Question 6: If the market needed return is 14% and the bond yield is 7%, what is the market risk premium?
- 0.07 (Correct answer)
- 0.005
- 0.21
- 0.02
Correct answer: 0.07
Market risk premium = Market required return - Yield on bond <br> = 14% - 7% = 7.00%
Question 7: Which of the following does not affect interest rates?
- Increase in credit demand
- Rising inflation
- Growth economy
- None of the above (Correct answer)
Correct answer: None of the above
An increase in credit demand, rising inflation, and a growing economy can indeed have an impact on interest rates. <br> It's important to note that interest rates are influenced by various factors, including monetary policy decisions by central banks, market conditions, inflation expectations, and global economic trends. Therefore, changes in credit demand, inflation, and economic growth can be important factors that shape interest rate decisions, but they are not the only determinants.
Free Financial Risk Management Questions and Answers
What else is referred to as a net worth statement